University finances

An overview of the University's current financial position, the financial scenarios we are modelling as we look to next term and information on the steps we all must take to protect and improve the University’s financial position.

Latest updates

  • On Tuesday 18 August the Vice-Chancellor emailed all staff about our response to the changes to A-level grading and how it impacts on our admissions and plans for next year. In the email he explains that we are now digesting what our current student recruitment position means for our overall financial outlook and that we will provide further updates as soon as we can.
  • On Wednesday 19 August we took the decision to end the collective consultation with trade unions over potential measures to reduce staff costs.
  • We will update the FAQs on this page as we know more about our overall financial outlook.

Email updates from Jo Jones, Chief Financial Officer:

7 August 2020

7 August 2020: An update on our financial position

Dear colleagues

In my last message to you, I outlined the measures we are taking to protect and improve the University’s financial position. As you are aware, we are preparing for a £100 million reduction in our overall income for the 2020-21 financial year.

As you will have seen from Wyn Morgan’s update on student recruitment, there is still some uncertainty around whether some students who have applied to Sheffield will definitely be in a position to join us for the upcoming academic year. As 46 per cent of our income is made up of course fees, and almost half of this comes from international student fees, it is vital that we address and plan for this potentially very significant financial shortfall. This is of course a very complex and evolving picture, which has raised a variety of questions.

To keep you updated with the latest information and hopefully answer some of the questions you may have, we have compiled this new web page. Below I have included answers to some of the questions we have received. If your question has not been answered on this page, please contact internalcommunications@sheffield.ac.uk and we will do our best to add those to the page. I will continue to share updates with you.

I also want to say a huge thank you to everyone. We all have a part to play in promoting Sheffield to prospective students and improving the University’s financial position. I realise that this is a difficult time but please know that your efforts are greatly appreciated and that these actions will ensure our long term financial sustainability, enabling us to continue to deliver quality teaching and research.

With best wishes,

Jo Jones
Chief Financial Officer

18 May 2020

A message from our Chief Financial Officer

Dear colleagues

For those of you who don’t yet know me, I joined the University of Sheffield as Chief Financial Officer at the beginning of February. It is safe to say I never anticipated to be writing to you all for the first time in these circumstances and I want to thank you in advance for taking the time to read and digest this important information.

This update will provide an overview of our current financial position, let you know the financial scenarios we are modelling as we look to next term and give information on the steps we all must take to protect and improve the University’s financial position.

Our current financial position

As is the case for all universities, the Covid-19 pandemic has had a significant impact on both our current income and our financial forecasts for the next academic year.

Since we closed University buildings in March, we have lost over £10 million in income from student residences, conferences, catering and sports activities. We have also seen some pauses in research income from funders.

While these losses are significant, from the measures we have already taken, the University has been able to manage them well and it is our projections for next year that need greater attention.

Our projections for next year

Looking to the next academic year, our latest financial forecasts show that, prior to Covid-19, we expected to receive £780 million of income during the next academic year. This would be made up of £346 million of course fees, £87 million of funding council grants, £238 million of research grant income and £110 million of other income. Of the £346 million of course fees, £177 million relates to international student fees.

Although we are receiving an encouraging level of international student applications, we are aware that the Covid-19 pandemic may impact on a student’s ability to travel to the UK for study, which may in turn affect their decisions. There is also a risk that some home students may choose to defer study as a result of the pandemic.

We have looked at two potential recruitment scenarios:

  • Firstly – no international students study at the University, broadly the same as only 50 per cent of total tuition fees received. This results in a £162 million reduction in cash received.
  • Secondly – 50 per cent of the international intake and 25 per cent of the Home/EU new intake are not recruited. This results in £70 million reduction to our cash received.

If these students are not on campus we will also see reductions to residential, catering and sports income. Although actual recruitment in September may differ from these figures, they do show the large amount of income at risk.

Actions we have taken so far

It is due to this high level of uncertainty and the potential high value of this loss of income that we have introduced a number of immediate measures to build our cash balances as much as possible. These include:

  • All new staff posts or extensions to existing staff contracts will be reviewed and approved by a new Recruitment Advisory Panel chaired by the Deputy Vice-Chancellor.
  • Non-pay expenditure is restricted to essential spend only. We have a task and finish group working on guidance for colleagues which will be available at the end of this month. Until this guidance is released please only commit expenditure if it is absolutely essential and essential that it is required now.
  • Capital projects have been paused and are restricted to projects with contractual obligations only.
  • We have reviewed and made changes to our reward and recognition process for 2020. More information will be shared with you this week.
  • We are accessing available government support through the Job Retention Scheme, advance payments from the Student Loans Company, and the Quality Research payments. We are keeping under review the need to apply for the Covid-19 Corporate Financing Facility, a scheme to help large businesses affected by coronavirus (Covid-19) through the purchase of their short-term debt. This is not an immediate requirement for us as we have a revolving credit facility already in place.
  • We are looking at the areas where we can increase student numbers by up to five per cent as part of the conditions announced around the new cap on student recruitment for 2020-21.
  • We are also engaging with the government around the opportunities for further support for crucial research.

Alongside this, we will start to prepare further actions that could be taken to mitigate a £100 million shortfall in income. This work is being progressed and we will keep you informed as plans develop.

How we can all support a sustainable financial position

All of us need to do everything we can to support a sustainable financial position for our University. It is really important that in all you do, you consider what is and isn’t essential spend. Your efforts to do this so far are really appreciated; please continue as this will make a significant difference.

We also all need to play a part in developing the best online education possible, the safest campus and to let students know how committed we are to their education, development and graduate opportunities. Acting as advocates and promoting the University in the best possible way will help to maintain our position as a globally-leading university.

There has already been a fantastic effort from colleagues across the University to develop and deliver student recruitment activity online. We really must continue to prioritise this work given the potential high loss of income in this area.

Thank you for everything you are already doing to protect and improve the University’s financial position. I will continue to keep you updated so that you have the information you need to help the University in these challenging financial times.

With thanks

Jo Jones
Chief Financial Officer

Frequently asked questions:

Why are we expecting a fall in income and how much do we need to save?

The £100 million expected shortfall in income has arisen as a direct consequence of the Covid-19 pandemic and the expected reductions in home and overseas undergraduate and postgraduate students joining the University at the start of the 2020-21 academic year. This will directly impact the University’s income from tuition fees, but also from commercial activity such as accommodation, hospitality and sports facilities. We are also anticipating a £28 million reduction in research income. We are therefore planning to make £100 million of savings.

This is of course a constantly evolving situation and we will not know the student recruitment enrolment position until later in the autumn. We will continue to update you as the student figures for the next academic year become clearer in the coming weeks.

What have we saved so far?

For the budget year 2019-20

Given the uncertainty around our future income, we have already introduced measures to help improve our cash position for the 2019-20 financial year. As a result of stopping discretionary spend, reviewing new staff posts and extensions to existing contracts, and pausing capital spend, we now expect that our year end cash balances will be in excess of £10 million better than planned prior to the pandemic.

During this year the University has also fully funded staff posts that are normally paid for externally. We have mitigated most of these additional costs by accessing the government’s Coronavirus Job Retention Scheme, through which we have been able to claim £3.1 million to date.

For the budget year 2020-21

Our £100 million reduction is based on the 2020-21 budget year. We have been able to identify £30 million of savings through pausing or stopping planned capital expenditure in 2020-21 and an additional £10 million from planned property sales.

£60 million savings have been requested from faculties and departments and, of that, a net £35 million has been identified as achievable to date. This includes £12 million savings from the recent voluntary severance scheme and £17 million of non-pay savings. As part of the national pay negotiations, the collective employers have indicated that in the current circumstances a zero per cent increase is the only outcome the sector can afford. Trade unions are considering this offer, however if it does remain at this level it would reduce our forecast expenditure by a further £6m.

This means that we still need to identify a further £25 million in cost savings. We will initially focus on non-staff savings. We will review and adjust our plans, as necessary, in the autumn when our actual student recruitment position is known. This could be better or worse than our budget assumptions, but it is important that we have plans that can be acted on quickly if required.

What else is planned?

We are reviewing our actual July year end cash position to see whether there is any improvement from our forecast position that could count towards the savings. We will also continue to review the capital programme and the non pay budgets. We are also assessing the faculty and departmental plans to determine whether all of the savings proposed could realistically be implemented in-year, if required.

In addition to this, we have launched a number of additional voluntary cost saving options available to staff, including a temporary reduction in working commitment, the purchase of additional annual leave, a period of unpaid leave, or an unpaid career break. Please visit the voluntary schemes web pages for further details.

We are working with our current lenders to see if we can create more capacity to borrow, should that be required. This is especially important as the government research support package is anticipated to be in the form of both a grant and a loan.

What support are we accessing?

We have already accessed available government support through the Job Retention Scheme, advance payments from the Student Loans Company, and the Quality Research payments.

The government recently also announced a University Research Support Package. We are still awaiting further details of this package, however we currently anticipate that this will be in the form of a grant and a loan and that this can be utilised for research purposes only. We also understand that to be eligible, universities will need to demonstrate efficiency savings.

We have not applied for the Covid-19 Corporate Financing Facility, a scheme to help large businesses affected by coronavirus which provides a short term loan to help manage cash flow, as we already have a revolving credit facility in place that can provide this support.

What is the revolving credit facility?

A revolving credit facility is a type of lending that allows us to access cash in a flexible way. We can draw down and repay variable amounts of cash up to the agreed limit at any time while the agreement is in place. Revolving credit facilities are mainly used to resolve short term cash shortfalls and, like any form of borrowing, we need to ensure we plan the repayments. The simplest way to think about revolving credit facilities is to consider it a bit like an overdraft you may have on a personal bank account.

What is the University Research Support Package scheme and how will it work?

The scheme, which was announced at the end of June, will cover the lower of up to 80 per cent of a university’s income losses from international students for the 2020-21 academic year, or up to the value of non-publicly funded research activity in that university.

This will be offered as a 25 per cent grant and 75 per cent loan and you won’t be able to have a grant without a loan (and vice versa). As the amount that we are eligible for will be based on our actual student recruitment performance, we can only apply for it once we know our exact position. If our actual student recruitment was the same as our budget assumption it would mean that we may be eligible for £56 million of support.

We are still awaiting further details on the scheme, however we know that universities will have to show that they are making efficiency savings and that the money will be used for research purposes only. Furthermore, it is likely that it will focus on supporting specific priorities including STEM, working with business and charities and commitments being made to equality, diversity and inclusion. You can find out more through explanatory notes for the scheme on the government website.

As 75 per cent of this support is in the form of a loan, we will need to ensure that in taking this support it does not cause any breach of the bank covenants with our existing lenders. We are currently working with our existing lenders to achieve this. If we take this support, we will also need to incorporate the repayment of the new loan in our financial forecasts.

What is meant by a covenant?

Most loan documents contain financial covenants. These are minimum metrics that we must achieve to remain compliant with the loan agreement throughout the period of the loan. They are tested once a year, based on our financial statements. It is important not to breach covenants as the lender then has the right to request full repayment of the loan. As the metrics look at the relationship between our borrowing, our ability to repay the borrowing and the value of our assets, they can limit the amount of additional borrowing the University may take. Usually this would not be an issue for us but, as Covid-19 makes it more difficult for us to achieve these metrics and the proposed government Research Support Package is likely to be primarily in the form of a loan, we need to work with our lenders to ensure we do not breach the metrics.

What are other universities doing?

We are not alone in the sector in facing financial challenges as a result of the Covid-19 pandemic and many other universities are exploring options similar to those that we are considering. This is also true of organisations in other sectors.

How can I help support the University to achieve a sustainable financial position?

It is really important that in all that you do you consider what is and isn’t essential to spend. Your efforts to do this so far are really appreciated. Please continue as this will make a significant difference.

Depending on your role, you can also help by supporting key activities such as developing the best online education possible, creating a safe campus and letting students know how committed we are to their education, development and graduate opportunities. Acting as advocates and promoting the University in the best possible way will help to maintain our position as a globally-leading university.

There has already been a fantastic effort from colleagues across the University to develop and deliver student recruitment activity online. We really must continue to prioritise this work given the potential high loss of income in this area.

We have low levels of borrowing - are we considering borrowing more?

With the exception of the loan related to the government Research Support Package we are not currently seeking additional borrowing as:

  • We currently have an undrawn revolving credit facility (RCF) of £100 million that we can utilise if performance is worse than planned, however we will then need to plan how we repay this.
  • Our existing bank covenants limit the amount of new borrowing we can take. They also have limits on the minimum value of operating cash generated to our net debt position. This means that a reduction in turnover will in most instances require a reduction in revenue costs.
  • The use of borrowing should normally match the life of assets. Medium/long term borrowing is not usually taken to deal with revenue expenditure, unless it is to bridge a short term position and we already have the revolving credit facility that can enable this.
  • Borrowing is a one-off action but we are not yet certain how long any recovery from Covid-19 will take., Therefore we will need to ensure that we can demonstrate that we are a going concern, with sufficient cash to meet our financial commitments and bank covenant compliance. So, although utilising some of the RCF in the short term may be part of the solution, we also have to consider a package of measures that could reduce the cost base. Some government support is dependent on universities demonstrating efficiency improvements.
We have recorded an underlying operating surplus in recent years, will this help?

Yes, this does help. Past underlying operating surpluses demonstrate that our university is financially viable, as our income is exceeding our operating expenditure. The operating cash that has been generated as a result of these surpluses has then mainly been utilised to pay for our borrowing costs and the capital programme. The results of our past financial performance are reflected in the current cash position and balance sheet, our assets are primarily in the form of land, buildings and equipment, as we have not had a strategy of building cash reserves.

Can we use our reserves?

The reserves that are held in cash are already incorporated in our cash flow forecasts. However, most of our reserves are held in the form of fixed assets - that is land, buildings, fixtures, fittings and equipment. Our plans already include an assumption that we receive £10 million from asset sales. We are considering options for better utilising our buildings, which may result in further sales, however we can not sell assets that we require to operate day to day.

As is the case with borrowing, selling assets provides a one-off benefit and does not necessarily mean that we can demonstrate that we are a going concern, with sufficient cash to meet our financial commitments and bank covenant compliance going forward if the financial impact of Covid-19 continues beyond one year. So, although asset sales can form part of a package of measures, we can not rely on this alone.

Useful links

Voluntary schemes